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Church accidentally invests in Wonga

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The amount of Church money indirectly invested in Wonga was about £75,000 out of investments totalling £5.2bn.

The Archbishop of Canterbury said he was "embarrassed" and "irritated" by the findings

Lambeth Palace said an independent inquiry would be launched into how "this serious inconsistency" occurred

Lambeth Palace has ordered an independent inquiry into investments made by the Church of England's £5.2bn investment fund after the Financial Times revealed that it had indirectly invested in Wonga, the payday lender.

The Archbishop of Canterbury said he was "embarrassed" and "irritated" that the Church Commissioners had indirectly invested in Wonga, the payday lending firm that he has vowed to "compete out" of business by encouraging credit unions to be set up in churches across the country.

In an interview with the BBC's Today programme on Friday morning, Justin Welby said that the amount of Church money indirectly invested in Wonga was about £75,000 out of investments totalling £5.2bn.

The church, which claims to have a strong ethical investment policy that explicitly bans companies involved in payday lending, invests in Accel Partners, the US venture capital firm that led Wonga's 2009 fundraising.

He said: "Now, it shouldn't happen, it's very embarrassing, but these things do happen. We have to find out why and make sure it doesn't happen again."

"We can't say that we tolerate bad things but we have to live in the real world . . . how do you actually live in the complexity of today."

When asked if capitalism was amoral, he said: "I don't think capitalism is necessarily amoral, it can sometimes be immoral but it is not of itself immoral."

Lambeth Palace said an independent inquiry would be launched into how "this serious inconsistency" occurred.

Jonathan Bartley, co-director of Ekklesia, the religious think-tank, told the BBC that the church had acted within its own investment guidelines.

"I don't think the Church of England needs an inquiry . . . if you look at its policies, they're very clear. The Church of England can invest in payday loan companies, or those that invest in payday loan companies, provided it's not more than 25 per cent of their business," he said.

"The 25% figure is exactly the same for pornography, gambling . . . in armaments it's 10 per cent. They've gone down a route to maximise their profits; they're absolutely explicit that they want to make 5 per cent above the rate of inflation."

Archbishop Welby has been a prominent critic of short-term lenders, and has previously supported the introduction of a cap on the amount an individual can borrow from these companies.

In an interview with the magazine Total Politics published this week, he revealed he had met with Errol Damelin, founder and chief executive of Wonga, to inform him of the Church's plans to go head-to-head with him on short-term loans.

"I said to him quite bluntly we're not in the business of trying to legislate you out of existence, we're trying to compete you out of existence," said the Archbishop.

The Church's plan revolves around opening its network of 15,000 church premises to existing credit unions and offering volunteers to help run them.

The Church has played an increasingly active role in the debate over ethical banking in recent months, both as an investor and because Archbishop Welby was an outspoken member of the Parliamentary Commission on Banking Standards.